Spectronix inc operates in a world of perfect capital, Ask an Expert

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Spectronix Inc. operates in a world of perfect capital markets, has no debt, and has a required 6. rate of return on equity of 10%. An executive manager has suggested that borrowing money to buy back outstanding stock is a good idea because it would replace equity financing with less expensive debt financing, thus increasing the value of the firm. Assume the firm issues new debt with a required return of of 5% to repurchase 30% of the outstanding stock. What is the cost of equity at the conclusion of this transaction?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92076065

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